Press Release

Kamakura Reports Improved
Corporate Credit Quality in October

Kamakura Troubled Company Index Decreases 0.61% to 7.16%

NEW YORK, November 1, 2017: Kamakura Corporation reported Wednesday that the Kamakura troubled company index ended October at 7.16%, a decrease of 0.61% from the prior month. The index reflects the percentage of the Kamakura 39,000 public firm universe that has a default probability over 1.00%. An increase in the index reflects declining credit quality while a decrease reflects improving credit quality.

As of the end of October, the percentage of the global corporate universe with default probabilities between 1% and 5% was 6.02% a decrease of 0.39% from the end of September; the percentage of the universe with default probabilities between 5% and 10% was 0.86%, a decrease of 0.15% from the prior month; the percentage between 10% and 20% was 0.23%, down 0.04%; while the percentage of companies with default probabilities over 20% was 0.05%, down 0.03%. The index ranged from 7.06% on October 27 to 7.84% on October 12. Volatility remained low during the month.



At 7.16%, the troubled company index improved to the 88th percentile of historical credit quality (with 100 being best all time) over the period from January 1990 to the present. Among the ten riskiest rated firms in October, seven were from the United States and one each were from Australia, Canada and Great Britain. During the month, there were 9 defaults in the coverage universe. Walter Investment Management Corp. (NYSE: WAC.BC) announced on October 20 an expected successful restructuring of approximately $700 million in debt including a planned pre-packaged plan of reorganization to be filed in late November. Walter Investment Management Corp. has been on the troubled company list since 2014. Windstream Holdings (NASDAQ:WIN) has also been on the troubled company list since 2014 and is now the riskiest firm in the index.



The evolution of Walter Investment Management’s 1 year default probability is shown below:

Martin Zorn, President and Chief Operating Officer for Kamakura Corporation, said Wednesday, “Global economic news remains positive with momentum building in many markets. While inflation remains muted, the Fed believes that the Phillips Curve holds and tighter labor markets will boost inflation in the months ahead. On the other hand, market expectations have not moved much. European economic data and sentiment remains positive and the markets have largely ignored the turmoil in Spain. These indicators all point towards increased interest rates ahead with the possibility that rates may rise faster than market expectations. In Asia, we see increases in China’s government bond yields accelerate. This could be bad news for leveraged loans, zombie companies and low-income Americans who are leveraging to the max according to recently released data. Stress testing interest coverage protection on debt instruments should be a priority for portfolio managers in the current environment.”

The Kamakura expected 10-year cumulative default rate for all rated companies world-wide moved up to 14.24% this week, well above the 13.33% experienced in September 2008:

The Kamakura troubled company index measures the percentage of 39,000 public firms in 68 countries that have annualized 1 month default risk over one percent. The average index value since January, 1990 is 14.65%. Beginning in November 2015, the Kamakura index has used the annualized one month default probability produced by the KRIS version 6.0 Jarrow-Chava reduced form default probability model,a formula that bases default predictions on a sophisticated combination of financial ratios, stock price history, and macro-economic factors. The KRIS version 6.0 models were developed using a data base of more than 2.2 million observations and more than 2,600 corporate failures. A complete technical guide is provided to subscribers which includes full model test results and parameters. The KRIS service also includes a wide array of other default probability models that can be seamlessly loaded into Kamakura’s state of the art enterprise risk management software engine Kamakura Risk Manager. Models available include the non-public firm default model, the commercial real estate model, the U.S. bank model, and the sovereign model. Related data includes credit default swap trading volume by reference name, market implied credit spreads, and prices on all traded corporate bonds traded in the United States market. Macro factor parameter subscriptions include Heath, Jarrow and Morton term structure models for government securities in the United States, Germany, the United Kingdom, Canada, Spain, Sweden, Australia, Japan, Thailand and Singapore. All parameters are derived in a no arbitrage manner consistent with the seminal papers by Heath, Jarrow and Morton and Amin and Jarrow. A KRIS Macro Factor Scenario Service subscription includes both risk neutral and “real world” empirical scenarios for interest rates and macro factors.

The version 6.0 model was estimated over the period from 1990 to May, 2014, which includes the insights of the entirety of the recent credit crisis. The 68 countries currently covered by the index are Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia, Cyprus, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Hong Kong, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Malta, Mexico, Nigeria, the Netherlands, New Zealand, Norway, Oman, Pakistan, Peru, the Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, the United States, and Viet Nam.

To follow the troubled company index and other risk commentary by Kamakura on a daily basis, please follow
Kamakura CEO Dr. Donald van Deventer (www.twitter.com/dvandeventer)
Kamakura President Martin Zorn (www.twitter.com/riskmgrhi) and
Kamakura’s official twitter account (www.twitter.com/KamakuraCo).

About Kamakura Corporation
Founded in 1990, Honolulu-based Kamakura Corporation is a leading provider of risk management information, processing and software. Kamakura was named to the World Finance 100 by the Editor and readers of World Finance magazine in 2016 and 2012. In 2010, Kamakura was the only vendor to win 2 Credit Magazine innovation awards. Kamakura Risk Manager, first sold commercially in 1993 and now in version 8.1, is the first enterprise risk management system with users focused on credit risk, asset and liability management, market risk, stress testing, liquidity risk, counterparty credit risk, and capital allocation from a single software solution. The KRIS public firm default service was launched in 2002. The KRIS sovereign default service, the world’s first, was launched in 2008, and the KRIS non-public firm default service was offered beginning in 2011. Kamakura added its U.S. Bank default probability service in 2014. Kamakura has served more than 330 clients ranging in size from $1.5 billion to $1.6 trillion in assets. Kamakura’s risk management products are currently used in 47 countries, including the United States, Canada, Germany, the Netherlands, France, Austria, Spain, Switzerland, the United Kingdom, Russia, the Ukraine, Eastern Europe, the Middle East, Africa, South America, Australia, Japan, China, Korea, India and many other countries in Asia.

Kamakura has world-wide alliances with Fiserv (www.fiserv.com) and SCSK Corporation (http://www.scsk.jp/index_en.html) making Kamakura products available in almost every major city around the globe.

For more information contact
Kamakura Corporation
2222 Kalakaua Avenue, Suite 1400, Honolulu, Hawaii 96815
Telephone: 1-808-791-9888
Facsimile: 1-808-791-9898
Information: info@kamakuraco.com
Web site: www.kamakuraco.com